Because they had a pre-approval letter from the bank, the seller decided to take a chance on them and agreed to go with no down payment if the buyers would pay any closing costs except for the seller’s title policy.

The sale closed two weeks later, and the buyer’s costs and loan were:

• $350 for a certified appraisal that both parties agreed to use to determine the selling price
• $315 paid to the title company in closing and document preparation fees
• $180 in recording fees (warranty and trust deeds)
• A $217,000 loan at 6.15 percent with $1,322.03 as the monthly payments (thirty-year amortization)

In twelve years, or at the seller’s request thereafter, the buyers would refinance and pay off the loan. In contrast, if the buyers had financed through a mortgage lender, the closing costs would have been between $5,000 and $6,500, and the monthly PMI payments would have been between $70 and $90.

Should the buyers stay in the home for twelve years, they will easily have enough equity to get a lower cost mortgage or to sell and move up. As for the seller, he had a secured monthly cash flow of mostly interest. And at the end of the twelfth year, the loan balance would be paid down to about $172,446.

Another alternative for buyers to save serious money is to get the seller to take back a second mortgage for 20 percent (or whatever is needed) of the purchase price. This allows you to obtain an 80 percent loan at a lower interest rate, without having to pay PMI payments.

Buying a home with seller financing can be much simpler than dealing with a bank’s paperwork—and saving thousands of dollars in closing costs and PMI doesn’t hurt, either. However, be sure to hire an attorney to look over the deal before you commit. Spending a few hundred dollars in legal fees is a good investment in peace of mind.